How to Consolidate Your Debt

Debt sucks. When you’re in debt you just don’t have any control over your life. Rather than working towards your own goals and dreams you have to work to pay off someone else. You could be traveling the world or investing for the future but you never have the money to do those types of things because all your money goes towards debt payments.

Your choices and opportunities are limited when you have debt. You have to put up with things like a crappy job and a car with no heat. It stresses you out and it’s all you think about from the minute you wake up in the morning until the minute you fall asleep at night. It makes you feel helpless and depressed.

Yup, debt sucks. That’s why you need to work on paying down your debt and taking control of your finances. One of the most effective ways to pay down your debt quickly is to consolidate it into one payment at a lower interest rate. Here are a few options for consolidating your debt.

Ways to Consolidate Your Debt

Balance Transfer

One option for consolidating debt is transferring debt from high-interest credit cards to one with a lower interest rate. Lots of cards offer an introductory period with zero percent interest so you can pay down some serious debt before the rate increases when the promotional period ends. Of course, there are a few potential downsides that you need to keep in mind.

Most balance transfer offers charge a fee (usually about three percent of the amount you transfer) which will eat into any potential savings. You also need to look beyond the promotional offer and make sure the interest rate doesn’t skyrocket past the rate on your current cards when the introductory offer expires. Don’t forget that credit card applications count as a “hard inquiry” which can ding your credit score in the short term.

A Personal Loan

When you have debt spread out over many places it can be difficult to keep track of everything and stay on top of your payments. Consolidating all those different debts into one payment will simplify things. Taking out a personal loan to pay off all your other debts and making just one payment will be easier and it can save you money since the interest rate is likely lower than your credit cards.

Keep in mind a shorter repayment period will result in higher payments, so make sure you don’t borrow more than you you can afford to pay back. Also remember that applying for a personal loan, like applying for a credit card, counts as a hard inquiry and could negatively impact your credit score.

Tap into Your Home Equity

Many of us have a sizable portion of our net worth wrapped up in our home. Being a homeowner is great but if you’re finding yourself house rich and cash poor you may want to consider tapping into some of the equity you have built up in your home.

A home equity line of credit (HELOC) or a home equity loan will allow you to consolidate your debt into one payment at a lower rate than most other debts. Plus, the interest you pay may be tax-deductible.

There is a serious downside to this option…when you take out a HELOC or home equity loan you’re putting your house on the line. If you can’t afford to make the payments you could end up losing your home.

Mike is a freelance writer and blogger who specializes in finance and parenting topics. He is a dedicated husband and father of three who is obsessed with creating multiple streams of income and building wealth so he can achieve true financial freedom for his family. Like what you're reading? Subscribe to our free RSS feed and follow us on Twitter.

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